Were They Prepared for Retirement? Financial Status at Advanced Ages in the HRS and AHEAD Cohorts
Many analysts have considered whether households approaching retirement age have accumulated enough assets to be well prepared for retirement. In this paper, we shift from studying household finances at the start of the retirement period, an ex ante measure of retirement preparation, to studying the asset holdings of households in their last years of life. The analysis is based on Health and Retirement Study with special attention to Asset and Health Dynamics Among the Oldest Old (AHEAD) cohort that was first surveyed in 1993. We consider the level of assets that households hold in the last survey wave preceding their death. We study how assets at the end of life depend on three family status pathways prior to death - (1) original one-person households in 1993, (2) persons in two-person household in 1993 with a deceased spouse in the last year observed, and (3) persons in two-person households in 1993 with the spouse alive when last observed. We find that a substantial fraction of persons die with virtually no financial assets - 46.1 percent with less than $10,000 - and many of these households also have no housing wealth and rely almost entirely on Social Security benefits for support. In addition this group is disproportionately in poor health. Based on a replacement rate comparison, many of these households may be deemed to have been well-prepared for retirement, in the sense that their income in their final years was not substantially lower than their income in their late 50s or early 60s. Yet with such low asset levels, they would have little capacity to pay for unanticipated needs such as health expenses or other financial shocks or to pay for entertainment, travel, or other activities. This raises a question of whether the replacement ratio is a sufficient statistic for the "adequacy" of retirement preparation.
Poterba is a trustee of the College Retirement Equity Fund and the TIAA-CREF mutual funds, which provide retirement saving products. This research has been supported by the National Institute of Aging through grant P01 AG005842. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
James M. Poterba
In addition to my role as a faculty member at MIT, I am engaged in a number of outside activities. In the last three years, I have been:
(i) President of the National Bureau of Economic Research, a non-profit organization devoted to economic research (www.nber.org).
(ii) Trustee of the College Retirement Equity Fund (CREF) and independent director of the TIAA-CREF mutual funds (www.tiaa-cref.org).
(iii) Trustee of the Alfred P. Sloan Foundation (www.sloan.org). (since June 2009)
(iv) Member of the Panel of Economic Advisers at the Congressional Budget Office (www.cbo.gov).
(v) Director, the Jeffrey Company and the Jeflion Company. (until June 2010)
(vi) I periodically receive compensation for lectures or presentations. During the last three years, I have received amounts in excess of $500 from each of the following organizations: The Bradley Foundation, Clemson University, Dimensional Fund Advisers, DuPont, the Economic and Social Research Institute (Dublin), the Institute for Fiscal Studies (London), the Investment Company Institute, the Lincoln Institute of Land Policy, the Oxford University Press, Tulane University, the University of Illinois, and the University of Wisconsin.
Were They Prepared for Retirement? Financial Status at Advanced Ages in the HRS and AHEAD Cohorts, James M. Poterba, Steven F. Venti, David A. Wise. in Investigations in the Economics of Aging, Wise. 2012